Question

Halliford Corporation expects to have earnings this coming year of $ 3.12 per share. Halliford plans to retain all of its earnings for the next two years. For the subsequent two​ years, the firm will retain 45 % of its earnings. It will then retain 19 % of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 20.32 % per year. Any earnings that are not retained will be paid out as dividends. Assume​ Halliford's share count remains constant and all earnings growth comes from the investment of retained earnings. If​ Halliford's equity cost of capital is 11.8 %​, what price would you estimate for Halliford​ stock? ​Note: Remenber that growth rate is computed​ as: retention rate times rate of return.

The price per share is ​$?

Answer 1